Ask the expert: Are companies underprepared for Streamlined Energy and Carbon Reporting?
Jason Thackray of BiU is an expert on the new Streamlined Energy and Carbon Reporting (SECR) requirements and works with a range of businesses on compliance. We caught up with him to ask what companies should be doing now to get to grips with SECR.
You’ve previously sounded the alarm on low awareness of SECR, warning businesses that they could end up unable to comply with the requirements. Has this changed?
Certainly awareness is building, and I can see that those companies who have a formal tender process are starting to include SECR in that. Among our clients who have such a process I would estimate awareness is about 70%, which is positive. But among business as a whole, I’d say that awareness of SECR is still as low as 30%. And even with those companies who are more clued up, there are still some serious potential pitfalls.
If a company is aware of SECR and trying to comply, what are the pitfalls to avoid?
Many companies are going to trip up because they think most of the information that is needed to meet compliance is readily available. And it isn’t. It’s easy to think that because you had to comply with the CRC, ESOS or other reporting legislation, you must have already gathered all the data you need to comply with SECR.
But SECR is different. It details a specific set of deliverables aimed at really forcing companies to produce their energy and carbon footprint report. It forces you to either provide information about what your company is doing to reduce energy and carbon emissions, or explicitly say you’re doing nothing. So in that sense it’s very exposing. And the reporting is a challenge.
Can you explain why reporting under SECR is more challenging than reporting under CRC?
As with CRC, with SECR you do all your reporting at the highest level, the level of the parent company. The difference is that it’s not just reporting energy emissions, it’s reporting other environmental impacts – basically, your greenhouse gas emissions. It’s easy to gather energy consumption information, but it’s harder to gather environmental information across a spread-out organisation. Communication is always part of the problem when it comes to gathering data across a complex organisational structure. So many businesses will find they have to improve their communication and data-sharing.
Determining your key environmental impacts means looking at your direct emissions, your indirect emissions and your supply chain. It’s easy to see that if you pay for the fuel, if you own an emission source, you should include it within the boundary of your reporting. But if you’re excluding it, you have to state why. Transport, logistics fleets, things like that –
there’s a discussion that needs to be had around supply chain. Many businesses are going to find that extremely challenging.
What are the first steps for a business getting to grips with SECR?
The first step is to set the boundaries of your organisation – the operations that you need to report on. Then you have to choose the correct reporting period. In theory you can choose any 12-month period, but the advice is that you align it with your financial year. And if you don’t, you have to explain why you haven’t. So businesses need to take advice on that.
Then you need to determine your key environmental impacts as I mentioned just now, which is your Scope 1, 2 and 3 emissions under SECR.
The next steps are where it gets really tricky, and where you need to partner with an expert in the field. It’s about calculating your emissions. If your business falls under the scope of SECR you’ll probably already know about the carbon conversion factors that we can use to calculate the emissions from burning a litre of petrol or from disposing of a fridge-freezer or whatever. And you’ll know those factors are updated and published by BEIS every year. But you have to get your measurement and calculations absolutely right because your report will be public domain information. And then there’s the detail specific to your business, some important decisions to make on determining your energy intensity ratio.
Can you explain more about determining your energy intensity ratio?
Well, it’s measuring the benefit you’re getting out of your energy use. And to measure that, you need to have something that’s meaningful for your specific business. There are 16 pre-determined energy intensity ratios that might apply to your business. For example, in retail you might have energy use compared to square metre floor area. For manufacturing it’s usually the measure of tonnes of throughput. Because SECR applies to all sectors of UK business, you have to choose one of the pre-determined ratios or come up with your own. You might look at turnover, headcount, number of covers produced, number of pints pulled, things like that. Something that’s meaningful to your business.
So the measurement of your energy use and the calculations to convert it into emissions and energy intensity ratios are key. And then ultimately what you measure, you’ve then got to report it. And those are the steps that the SECR guidance document says every organisation should adopt as a minimum standard. That’s before we get into the issue of targets.
Will businesses be given legally binding emissions reduction targets under SECR?
No – but you still need to take the issue seriously. First you have to choose a “base year”, which is supposed to be your most recent full year’s accounts before reporting requirements kicked in. So for most businesses that’s financial year 2018-2019. As your base year, that is what you measure yourself against, going forward. You have to set yourself targets and share them. It will all be public domain. And the guidance says you need “verification and assurance”. Some businesses pay the big consultants huge amounts of money independently verify it. You don’t have to. We’d advise hiring your energy and environmental consultant to pull all the data together for you, assist you with all of these reporting details, and hold them accountable for all the information that’s provided.
So information about your emissions targets and how you’re doing will be publicly available?
Yes, which could potentially be bad for your company image. But a bigger incentive for most business will be the impact of energy use on the bottom line. Bills have gone up on average about 12% over the last 3 years, and non-commodity costs are expected to rise over 13% in the next three years. So even if the wholesale price of energy drops dramatically, which it is doing at the minute, the net effect over the next three years is still about an 6% to 8% increase in costs. Doing nothing means being faced with an 8% increase in costs. That’s assuming the price of oil doesn’t shoot up again. If it did, that rise in energy costs could push a lot of companies out of business. The work that businesses have to do under SECR is work they should be doing anyway to reduce energy costs and stay competitive.
The cost of doing nothing is potentially going out of business.
What should businesses be doing right now to prepare for SECR?
The more work you do this year, the easier it will be when you have to report. Companies who leave it until the last minute will find it’s a big rush and probably an expensive rush. We’re already signing clients up for SECR and talking to them about choosing the right intensity ratios, setting the boundaries. We’ll create a format for reporting that can be reused every year going forward.
Your sector and type of business determine how much work SECR will be for you. A big supermarket might hire a full-time consultant for three weeks. A high street retailer with the same number of units but a much smaller energy spend might need a week. And large manufacturing plants might need 2-3 months’ work. The sooner you look into it, the sooner you can find out how long it’ll take.
What is BIU doing for SECR clients at this stage?
We’re gathering data, classifying it under the scopes of SECR, reviewing it quarterly and creating forecasts for year end.
As a SECR consultant, what’s your main message to business?
I’m concerned by how many businesses seem to think SECR is going away. It’s not, and it’s UK legislation, so it will stay in place whatever happens with Brexit. It’s a complex but mandatory piece of work and the earlier you start, the easier and cheaper it will be for your business. The work of choosing your base year, gathering the data and setting targets should all be done now. Some businesses are going to ignore it until the last minute and end up with an expensive rush job or a fine, or both. But if you get started now, you won’t be one of them.
Need to learn more about SECR? Contact BiU for guidance and a free consultation on [email protected].